Current position: Carefully Floating
Stocks and Mortgage Bonds are both higher on good news that there has been a debt ceiling agreement.
Debt Ceiling Deal Agreed Upon
President Biden and House Speaker Kevin McCarthy have reached a debt deal in principal, but it still has to pass through the House and Senate. There are some spending caps in place, amongst other things, and the deal would push the debt ceiling issue down the road until January 2025. Because there is additional spending, the Treasury will have to issue over $700 Billion in new paper...a lot of which will be on the short end mostly in 2-year Treasuries. While it's a good thing it's not on the long end like 10- years, it still will suck some liquidity out of the markets.
So far, the Bond market is reacting well to the news, as the US is now likely out of the woods on any default fears, but we will have to see how the markets react when the additional supply comes to market.
Case Shiller Home Price Index
The Case Shiller Home Price Index, which is the "gold standard" for appreciation, showed that home prices rose 0.4% in March after rising 0.2% in February...clearly showing we are past the inflection point and home prices are on the rise once again. Year over year, home prices are up 0.6%.
From the peak in June of 2022, home prices have now only come down 2.3%...a far cry from a housing bubble, and things are clearly already turning around. It's important to note that in the coming months, year over year appreciation will eventually turn negative because of comparisons to the absolute peak, which the media will have a field day with. But remember, we saw 6% appreciation last year, and will likely see somewhere between 5-6% appreciation for the full year of 2023.
FHFA House Price Index
The FHFA (Federal Housing Finance Agency) released their House Price Index, which measures home price appreciation on single-family homes with conforming loan amounts. Different than Case Shiller, it does not include cash buyers or jumbo loans. The FHFA reported that prices rose 0.6% in March after rising 0.7% in February and 0.1% in January! Home prices are now 0.73% higher than they were at the previous peak in June of 2022.
Based on this, you can interpolate that the decline in Case Shiller is coming from higher priced homes where there is less demand. Additionally, there are cash discounts being offered, where buyers paying in cash are able to command a lower price, which is why Case Shiller is also lower.
This Week
Wednesday: Mortgage Apps, JOLTS
Thursday: Challenger Job Cuts, ADP Employment Report, Initial Jobless Claims
Friday: BLS Jobs Report
Technical Analysis
Mortgage Bonds are finally showing signs of turning around after a sharpy move lower the past few weeks. For now, Bonds have formed a reversal pattern off support and the stochastic momentum indicator is in the early stages of a positive stochastic crossover. There is a lot of room to the upside until reaching the next ceiling at 99.845.
The 10-year is back beneath 3.786% and is trading in the middle of a wide range, with the next floor at 3.64%. Similar to Mortgage Bonds, a reversal pattern and the stochastics portending lower yields are beginning to form. Begin the day floating.
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